This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Jeffrey Amico is an attorney at Fluidity, creators of the ethereum-based peer-to-peer trading network AirSwap.
In his seminal book The Innovator’s Dilemma, Clay Christensen explains how “disruptive” innovation occurs. Whereas incumbents are constrained by the needs and desires of their existing customers, new entrants can instead experiment with new technologies and target under-served or “fringe” customers. In the eyes of mainstream users, these new innovations initially look and perform worse than existing offerings. Often times, they start out looking like a toy.
Critically, however, they offer certain distinct attributes or features that are highly valued by the under-served customer segment. Over time, if the product is truly disruptive, the mainstream users will realize that they too want the new features, and will come to demand them as well. Through this progression, disruptive innovations move from the fringe to the mainstream, until they eventually overtake the incumbent’s offerings. Crypto entrepreneurs can follow this same roadmap to achieve mainstream adoption.
At their core, blockchains are shared computing systems that users can trust to record data and execute code as instructed. Because they sit outside the control of any particular entity or government, blockchains enable things like privacy, transparency and trust-minimization. While it is easy – and perhaps characteristic – for crypto entrepreneurs to assume instant universal demand for a financial system built around these features, there remain significant roadblocks to mainstream adoption. The most notable is that – at least in most developed economies – existing financial markets and products tend to work quite well for most users. It makes little sense for these types of users to switch over to a nascent technology that offers worse performance on the metrics they care about.
A better approach is to think critically about who is actually under-served by the current system, and how the specific attributes of blockchain technology can be leveraged to meet those needs. The use cases within this category are not novel. They are the same ones that have been discussed for years. Private payments. Cross-border remittances. Data sovereignty. Access to credit and other core financial services for the world’s 1.7 billion unbanked. Providing actual utility to users of this sort (as opposed to mere speculative utility) is not easy. It will require the industry to overcome significant technical, legal and political obstacles before these use cases can be realized at scale.
Infrastructure must improve to ensure would-be crypto users can actually access the internet at times when they need it the most. Regulatory clarity (and if possible, relief) must be achieved on issues that stand to undermine crypto’s immense potential, including antiquated money transmission laws. Policymakers must come to understand that crypto is not an illicit tool for criminals and money launderers, but rather a tool to expand access to financial services for underserved individuals. Asset volatility must be reduced before individuals will use crypto for bona fide, non-speculative use cases. These obstacles are real and will take significant work to be overcome.
And yet, there are reasons to be optimistic today.
At the protocol level, Bitcoin continues to grow more resilient and trustworthy with each added block. Developers continue to build “Layer 2” solutions to enhance mainstream useability. Stablecoins and open financial applications continue to develop and gain traction. USDC, for one, has grown to nearly $500 million outstanding in just over a year. Tether, despite its regulatory troubles, has over $4 billion outstanding and facilitates billions of dollars of stable-value transactions every day. Platforms like Maker and Compound have originated nearly $900 million in permissionless loans in less than two years. These are the core building blocks of a more open and accessible financial system, and they are making progress.
Ultimately, for crypto to move sustainably into the mainstream, it must provide utility beyond mere speculation. For that to occur, entrepreneurs should lean into the features that make blockchains different – namely, trustless computing – and build products that are uniquely enabled by those features. Doing so will produce truly differentiated products that certain would-be users need and care about, but can’t access today. Once these products gain a foothold among those “fringe” users, mainstream users will eventually take notice and come to want certain of their features (e.g., privacy) as well. This process may take years or even decades of hard work to accomplish. But that is true of any disruptive technology. Crypto will be no different.
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